Thermal power plants

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The year 2020 marks a historic year of crisis and turnaround for the power plant construction industry.

Investments in energy sector collapse

2020 has been a historic crisis and turning point year for power plant construction. Global investment in the power sector plummeted 18% in the wake of the Covid 19 pandemic. At the same time, the historic peak in primary energy consumption was probably exceeded, and the global end of coal-fired power generation and the entry into a decarbonized energy economy were heralded.

Against this backdrop, the power plant construction sector organized in the VDMA Large Plant Engineering Working Group recorded a significant drop in orders in 2020. Total orders fell by 29% to €4.2 billion (2019: €5.9 billion). This is the lowest level since 1999.

Power plant construction continues to struggle with multiple and intensifying challenges in the German and European markets. Efficient and greenhouse gas (GHG)-mitigating technology paths such as thermal waste treatment face social acceptance issues. At the same time, politically induced uncertainties make the investment environment increasingly volatile and long-term investment plans often lack reliability. In some cases, this even prevents projects that could contribute to CO2 mitigation such as carbon capture and storage (CCS) and capture and utilization of this gas (CCU). In other countries, however, such as China, the Netherlands, Norway, and the U.S., CCS and CCU are already accepted and economically attractive climate change mitigation technologies in both the energy and industrial sectors, helping to meet CO2 emission reduction targets in industrialized nations by 2050.

After decades of growth, global primary energy demand has peaked for the time being in 2019. In its Sustainable Development Scenario, which is based on an integrated approach to achieving the Paris climate protection goals and the UN Sustainable Development Goals, the World Energy Outlook 2020 expects a moderate but continuous decline in energy consumption of 0.7% per year until 2030. Accordingly, earlier forecasts of a further increase in global primary energy demand are highly unlikely to come true. The conversion of global energy systems to renewable sources and successes in improving energy efficiency in industry and in the building and transport sectors will contribute to this.

In contrast, global electricity demand will grow to 31,465 terawatt hours (TWh) of energy output by 2030, compared to 26,942 TWh in 2019. This represents an increase of 17%, or an average of 1.4% annually. While demand in most industrialized countries is stagnating, significant increases are expected in the emerging Asian countries (especially China and India).

With most new coal-fired power plant projects in China and India in recent years, the share of coal power in global energy generation has already passed its likely peak in 2019 and will continue to decline due to nation-state commitments to GHG mitigation. Many countries have already decided to phase out coal - including France (2022), the Netherlands (2029) and Germany (2038) - and have initiated corresponding measures to substitute coal with other energy sources. 

Energy experts have therefore revised their forecasts and now assume that the share of coal in total global energy generation will more than halve by 2030. The following long-term trends can thus be derived for the global energy mix:

  • Renewables are maintaining their position as the fastest growing energy sources.
  • The importance of coal-fired power is declining faster than recently predicted. Switching to other fuels such as natural gas can succeed in further reducing CO2 emissions in the energy sector in the short term.
  • In the medium and long term, the use of hydrogen as a fuel in gas-fired power plants opens up great potential. In the form of green hydrogen, greenhouse gas emissions can even be avoided completely.
  • Nuclear power can retain or even expand its current importance in some regions of the world, but it is nevertheless losing relative importance in the overall energy mix.

At the same time, the dismantling of large-scale power plants that stabilize the grid and the increasing use of renewable energies require an accelerated expansion of the power grids, the provision of reserve capacities and the development of efficient energy storage systems. Hydrogen could play a key role in this context.

  • The importance of coal is declining rapidly
  • With most new coal-fired power plant projects in China and India in recent years, the share of coal power in global energy generation has already passed its likely peak in 2019 and will continue to decline due to nation-state commitments to GHG mitigation. 
  • Many countries have already decided to phase out coal - including France (2022), the Netherlands (2029) and Germany (2038) - and have initiated corresponding measures to substitute coal with other energy sources. 
  • Energy experts have therefore revised their forecasts and now assume that the share of coal in total global energy generation will more than halve by 2030. The following long-term trends can thus be derived for the global energy mix:

- Renewables are maintaining their position as the fastest growing energy sources.

- The importance of coal-fired power is declining faster than recently predicted. Switching to other fuels such as natural gas can succeed in further reducing CO2 emissions in the energy sector in the short term.

- In the medium and long term, the use of hydrogen as a fuel in gas-fired power plants opens up great potential. In the form of green hydrogen, greenhouse gas emissions can even be avoided completely.

- Nuclear power can retain or even expand its current importance in some regions of the world, but it is nevertheless losing relative importance in the overall energy mix.

At the same time, the dismantling of large-scale power plants that stabilize the grid and the increasing use of renewable energies require an accelerated expansion of the power grids, the provision of reserve capacities and the development of efficient energy storage systems. Hydrogen could play a key role in this context.

Regardless of different expansion paths, priorities and speeds, the trend toward decarbonization continues unabated worldwide. In this context, the expansion of renewable energies is the most effective measure. Among all energy sources, renewables recorded the strongest growth last year. With a forecast annual increase of 16% (until 2030), photovoltaics is the fastest-growing energy source and benefits from low electricity generation costs in sunny countries as well as government subsidy programs. According to current forecasts, renewable energies will already have the largest share of all energy sources in global electricity generation in 2030, at 52 %. 

At the same time, hydrogen is gradually developing into an energy carrier that will permanently change the rules of the game on the global energy markets and could become a second mainstay in the global energy system alongside renewable energies.

At present, the business model for new gas turbine power plants in many places is still based on replacing coal-fired power plants, which tend to have shorter operating times and significantly reduced CO2 emissions. In the future, however, hydrogen-powered plants will increasingly be available as CO2-free energy storage systems and will provide additional support for the power grid in an energy supply that is becoming more volatile due to the increasing use of renewable energies.

In the area of thermal power plants, the use of hydrogen is therefore closely linked to the question of concepts for the subsequent use of existing conventional power plant sites and their infrastructural connection, as well as to the question of the general convertibility of gas turbine plants.

Functioning concepts for the provision of sufficient quantities of hydrogen at the respective locations still have to be developed and depend to a large extent on the existing infrastructure. In addition, planning for the construction of hydrogen pipelines and hydrogen production plants, as well as the development of corresponding storage concepts, is also still in its infancy.

Under the catchphrase "H2-Ready", the market in Europe and North America in particular expects new gas turbine power plants to be consistently convertible from gas as a fuel to pure hydrogen operation in the period from 2025 to 2035. Although successive enrichment of natural gas with hydrogen leads to a change in combustion behavior due to a change in the specific mixing ratio of the two gases, it is technically possible without further ado to adapt existing plants accordingly and thus to convert them cost-effectively to hydrogen use.

With the end of coal-fired power generation on the horizon and before carbon-free gases become available for power generation on an industrial scale, natural gas could play a key role as a bridging technology in securing base load.

Natural gas currently accounts for 23% of global electricity generation and is likely to decline to 21% by 2030. Absolute generation capacity will increase from 6,317 TWh (2019) to about 7,000 TWh (2025), then gradually decline to 6,465 TWh (2030). Despite this relative decline, natural gas will replace coal as the most important fossil fuel in power generation by 2030.

Suppliers of natural gas power plants are expected to benefit from this market development. There is potential in the European market in particular from the so-called fuel switch, i.e. the conversion of coal-fired power plants to other energy sources such as natural gas. As in the European market as a whole, the trend for these projects in Germany is predominantly toward small and medium-sized projects.

For years, power plant construction has been operating in a so-called VUCA world, i.e. a volatile, uncertain and very complex market environment. The transformation of the energy supply from a centralized energy system based on large fossil fuel-fired power plants to a decentralized energy system dominated by renewable energy plants and supplemented by hybrid plants in which electricity and heat generation are coupled with various technologies such as storage, hydrogen generation and CCU poses enormous challenges for the industry and requires a high degree of flexibility from companies.

In addition, the substitution of coal-fired power plants by natural gas-fired power plants is expected to continue in the coming years, which could open up further market opportunities for power plant construction. In this context, the role that natural gas will play in the European energy market in the future depends to a large extent on the regulatory framework and thus on the question of whether the energy carrier is classified by political decision-makers as a sensible bridging technology or rather as a so-called carbon lock-in, i.e. as an obstacle on the way to a sustainable energy economy.

These trade-offs are also reflected in the European Taxonomy Regulation, which in its current form impedes necessary investments in gas-fired power plants that could also run on renewable gases in the future. In addition, the uncertainties under state aid law caused by the shortened subsidy period for combined heat and power (CHP) projects are hampering many of the CHP projects currently in the planning stage in Germany. This undermines investor confidence in the long-term security of investment conditions.

Outlook

For the energy plant engineering industry, the current transformations also create growth opportunities, primarily in the construction of plants for the generation of carbon-free electricity. The economic stimulus and investment programs launched during the pandemic crisis could make an important contribution to helping technologies that are not yet commercially viable, such as green hydrogen, to achieve a breakthrough.